Legislature(2003 - 2004)
05/06/2003 08:45 AM House FIN
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* first hearing in first committee of referral
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= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HOUSE BILL NO. 250
"An Act relating to protests of state contract awards,
to claims on state contracts, to the arbitration of
certain state construction contract claims, and to
hearings and appeals under the State Procurement Code;
making conforming amendments in the State Procurement
Code; and providing for an effective date."
REPRESENTATIVE JIM HOLM, SPONSOR, provided information about
the bill. He noted that the bill was important given the
amount of contract work outstanding in the state this year.
He explained that the Associated General Contractors of
Alaska and the Department of Transportation had collaborated
to create a proposal that worked for both parties. He
discussed the difficulty of construction claims in Alaska,
due to the costs of litigation and arbitration. He noted
that arbitrations had in the past been drawn out to a point
when they were no longer financially feasible for either
party. He maintained that the bill meets the needs of both
contractors and the state, and facilitates more expedient
negotiations, placing all parties on equal standing. He
referred to the sectional analysis of the Sponsor Statement
as follows:
The purpose of HB 250 is to modify the construction
claims process to once again create a fair and
expeditious claims process. Specifically HB 250 will
modify the procurement code pertaining to construction
claims in the following manner:
1. If a procurement officer does not issue a
written decision by the due date, the
contractor may seek arbitration.
2. On appeals of all construction claims, the
parties can agree to binding arbitration.
3. The timelines for decisions have been
tightened, and redundant requirements have been
eliminated.
4. An arbitrator or hearing officer who does not
issue a decision by the deadline is
disqualified for a year.
5. Qualifications for arbitrators and hearing
officers will be established by the
commissioner of administration in regulation.
6. The contractor is entitled to recover some of
the claims costs incurred.
Prompt passage of HB 250 will expedite contractor's
claims and return fairness to the process.
Representative Croft referred to Section 7 of the bill and
asked if currently each side of the negotiations paid for
their own costs related to the claims process. He observed
that the bill would authorize full costs related to rule 82
[of the Alaska Rules of Civil Procedure].
MARK O'BRIEN, CHIEF CONTRACTS OFFICER, CONTRACTING
PROCUREMENT AND APPEALS, DEPARTMENT OF TRANSPORTATION AND
PUBLIC FACILITIES, in response to questions by
Representative Croft, confirmed that the bill would
introduce provisions under Rule 79 and Rule 82 [Alaska Rules
of Civil Procedure] to the recovery of both costs and fees
for claims adjudicated under AS 36.30.
Representative Croft referred to a reform of the claims
process in the previous year. Mr. O'Brien stated that the
process had existed for two years, but that this was the
first time the bill had been introduced to address issues
agreed upon by both the State and contractors. In response
to a question by Representative Croft, Mr. O'Brien confirmed
that last year a provision was added to collect interest on
claims back to the date upon which they were filed. He
noted that the bill does not affect that provision.
Mr. O'Brien added that when the Associated General
Contractors (AGC) approached the office, they were trying to
make the process faster, fairer and less expensive. He
stated that the bill specified time frames and shortened
existing time frames. He noted that most people viewed
arbitration as a better process and pointed out that the
bill made arbitration outcomes final, involving the courts
in only a few circumstances. He explained that arbitration
decisions might be appealed if the cases included fraud or
gross misapplication of the law. He stated that this
prevented a lengthy and expensive process that would include
both arbitration and a court case.
Mr. O'Brien stated that the bill would put in place a
selection process ensuring a neutral third party that is
acceptable to both sides. He explained that prior to this,
the hearing officer was appointed by the commissioner, a
practice that contractors viewed as being unfair. He
maintained that these factors would make the process more
expedient and impartial.
Mr. O'Brien pointed out that the only issue about which they
had not reached complete agreement was that of provisions
pertaining to Rules 79 and 82. He referred to the fiscal
note, which listed associated costs. He discussed the
contractors' viewpoint that they should be able to recoup
hearing costs and fees in order to actually recover their
court appointed awards. He noted that in the past eleven
years, claims costs roughly averaged $145 thousand per year,
averaging from between $350 thousand and $7 thousand,
depending on the complexity and length of cases. In addition
there were costs and fees associated with adjudication,
which varied based on the complexity of litigation. These
varying costs are taken into consideration in the fiscal
note. He emphasized that these costs were not federal aid
participating, making the costs a general fund expense.
Representative Croft addressed the concern of determining
the extent of claims, and asked if this was mitigated by
Section 7 (b), which allowed an offer of judgment. Mr.
O'Brien confirmed that this was correct, making it difficult
to calculate the costs unless one assumed that no Rule 68
offer existed, preempting the payment of costs and fees. He
explained that this was the "meet or beat" rule and
sometimes resulted in the payment of a substantial portion
of state costs. He maintained that this was a part of the
bill that the AGC and the Administration felt would
encourage settlement. He stated that the Administration
supports the bill.
DICK CATTANACH, EXECUTIVE DIRECTOR, ASSOCIATED GENERAL
CONTRACTORS OF ALASKA testified via teleconference in
support of the bill. He emphasized the importance of the
provisions that generated the fiscal note, and added that
the fiscal note would only manifest if the Department of
Transportation and Public Facilities did not change its
procedures. In regard to the costs not being offset by
federal dollars, he maintained that contractors were
currently paying all costs. He noted examples when
contractors paid over $250 thousand in legal fees for a $530
thousand claim. He maintained that the bill encouraged both
sides to arrive at reasonable amounts.
WENDY REDMAN, VICE PRESIDENT, STATEWIDE PROGRAMS, UNIVERSITY
OF ALASKA testified and raised concern about the section
which required mandatory arbitration in regard to small
claims. She stated that the University had not been
considered in crafting the bill, and had requested to be
exempted from that section. She indicated that the
University would work with the other provisions of the bill
and communicate with AGC and DOT in the coming year to
examine the small contract claims arbitration procedures.
She expressed support of the bill with the requested
exemption.
In response to a question by Representative Whitaker, Ms.
Redman stated that the amount that delineated a small claim
was less than $250 thousand. Representative Whitaker asked
about the rationale for requesting an exemption. Ms. Redman
stated that attorneys felt it would encourage more
litigation.
Representative Croft asked why the University would be
different from other portions of state government. Wendy
noted that AGC and DOT had been working on the bill for over
a year, and explained that the University was not part of
that discussion and did not have the same types of projects,
such as roads.
Representative Stoltze pointed out that the Department of
Natural Resources and other agencies engaged in projects
different from the Department of Transportation and Public
Facilities, and asked why they would not also be exempted.
Ms. Redman pointed out that the University was treated
differently than a state agency under the state procurement
code. They are directed, as are the Railroad and the Courts
System, under AS 36.30.005 to establish features equivalent
to the state, but are governed under the Board of Regents.
Representative Croft asked if the [Alaska State] Railroad
had been considered in the bill. Ms. Redman was unaware of
those provisions.
Representative Whitaker observed that factors that might
work for one state agency might not necessarily work for the
University. Wendy reiterated that the Department of
Transportation and Public Facilities had a considerable
amount of time to work with the bill and increase their
comfort level. She speculated that in the course of the
coming year, the University might increase its comfort level
as well.
Representative Holm stated that the Alaska Railroad was in
support of and is considered in the bill.
Representative Whitaker MOVED Amendment #1.
Sec. __ AS 36.30.005
(d) Notwithstanding the provisions of 36.30.627, the
University of Alaska is not required to arbitrate
construction contract claims unless it specifically
agrees to such arbitration.
In response to a question by Vice-Chair Meyer,
Representative Whitaker stated that he was not yet certain
where the amendment would be placed.
Ms. Redman referred to section 36.30.005 of the procurement
law, not included in HB 250, and explained that the
amendment would add a section that included that statute.
She added that the bill as written would prevent the
University from arbitrations in small contracts, and noted
that the University desired to become involved in such
negotiations, without it being mandated solely on the part
of the contractor. She indicated that the amendment would
allow the University to move forward in gaining experience
with these arbitrations.
Representative Whitaker clarified that 36.30.005 had not yet
been included in the bill, but stated that if the amendment
were adopted, then the bill language should be changed in a
manner to accept it.
In response to a question by Representative Stoltze, Mr.
Cattanach observed that the amendment would exempt the
University from binding arbitration on claims less than $250
thousand. He pointed out that as the bill was written, a
contractor could decide to challenge a decision by a hearing
officer through a third party arbitration. The University
was asking for exemption due to problems they had
experienced with binding arbitration. He stated that, since
the University had not been involved in discussions with the
Department of Transportation and Public Facilities over the
past two years, the Department of Law did support the
exemption.
There being NO OBJECTIONS, the Amendment was ADOPTED.
Representative Foster MOVED to report CSHB 250(FIN) out of
Committee with individual recommendations and the
accompanying fiscal note.
CSHB 250 (FIN) was REPORTED out of Committee with a "do
pass" recommendation and one zero fiscal note from the
Department of Transportation and Public Facilities.
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